Written by Steven K. Brumer, special to Communities Digital News
(SAN DIEGO) – September 27, 2012 – Former Major League Baseball superstar slugger Jose Canseco has admitted his struggle with steroid use, casting a shadow over his impressive 14-year career. He has also gotten tangled in numerous legal problems over the years.
On July 31, Canseco filed for Chapter 7 bankruptcy relief. Canseco’s filing was very likely motivated by his desire to avoid paying a $785,344 judgment to Christian Presley. A Florida trial court awarded Presley the judgment against Canseco and his brother based on injuries that Presley sustained in a fight with the Cansecos in a Miami nightclub in 2001. Canseco appealed and lost.
Wherever all that money went, the question today is whether Canseco will be able to discharge this debt. The answer is “it depends.”
Most consumer debts are generally dischargeable in bankruptcy. That means they’re wiped out by the bankruptcy court. But what about debts based on lawsuits? If you’re sued and lose the case, can you avoid paying the judgment just by filing for bankruptcy?
Sometimes yes and sometimes no. This is a question of what is known as “dischargeability.”
The discharge is finish line of a bankruptcy case. It’s why you filed in the first place. Dischargeability is the extent to which a debt will be erased by a bankruptcy court and it’s a big issue in bankruptcy. It’s also a trap for the unwary and the unrepresented. The bankruptcy code specifies the types of debts that are generally non-dischargeable. For example, you can’t get out of paying child support by filing for bankruptcy.
But what if you’re in a bar fight, someone gets hurt, and sues you? Can you avoid paying that judgment by filing bankruptcy? Surprise: in many (perhaps most) cases, you can.
The bankruptcy code states that a court’s discharge order does not help with debts “for willful and malicious injury by the debtor to another entity or to the property of another entity.” But it’s not automatic. The creditor (the injured person or entity to whom the debt is owed) must file a lawsuit inside the debtor’s bankruptcy case (called an “adversary proceeding”) asking the bankruptcy court to allow the debt to survive the bankruptcy. Debts arising from negligence, however, (like auto accidents) are not within the scope of this exception and are generally dischargeable. And filing a lawsuit costs money that many judgment creditors just don’t have.
In order to keep the debtor on the hook for such a debt, the bankruptcy court must find that the injury was both willful and malicious, both of which have been defined by case law interpreting the bankruptcy code. It’s significant to note that a judgment like the one entered against Canseco in the Florida case, does not alone establish a willful and malicious injury; the creditor still needs to file the complaint in the bankruptcy case and win in court. Again.
So what does all of this mean? If you’ve been sued and you lost, bankruptcy is likely still a very good option for you to avoid paying the debt – even if you’ve been found liable for an intentional act like battery or even fraud. The judgment creditor will still have to go back to court and sue you again and win. Again.
Some may do this. Many may not. If you’re owed money due to a judgment against an individual, and the person who owes you money is threatening you with filing bankruptcy, you now know it’s not over till it’s over.
Steven K. Brumer, Senior Bankruptcy Counsel with Fleischer & Associates in San Diego, California, practices primarily in the areas of consumer bankruptcy, and the litigation of bankruptcy matters. Brumer is one of few attorneys who have earned a specialized post-graduate degree, the Master of Laws degree (LL.M.) in taxation, from the University of San Diego. This course of study focuses on tax planning, analysis, and litigation. Contact Steven K. Brumer at Fleischer & Associates; follow him on Facebook at www.facebook.com/brumerlawfirm.
Copyright © 2012 by Fleischer & Associates, Attorneys at Law
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